IRIDEX Corporation

Good day and thank you for standing by. Welcome to the Eridex second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Leigh Salvo with Investor Relations. Please go ahead.

Thank you, Carmen, and thank you all for participating in today's call. Joining me are David Bruce, Chief Executive Officer, and Fuad Ahmad, Interim Chief Financial Officer. Earlier today, Iridex released financial results for the quarter ended July 2nd, 2022. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal security laws. which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical fact, including but not limited to statements concerning our strategic goals and priorities, product development matters, sales trends, and the markets in which we operate. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place reliance on these statements. For a discussion on the risk of the risks and uncertainties associated with our business, please see our most recent Form 10-K and Form 10-Q filings with the SEC. IRDX disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast today, August 15th, 2022. And with that, I'll turn the call over to Dave.

Good afternoon and thank you all for joining us today. and this year's summer slowdown appears to be short term and attributable to a combination of factors. Macro headwinds from inflationary pressure and U.S. dollar strength relative to foreign exchange rates has dampened our OUS retina capital system sales during the quarter and increasing pricing pressure on our international customers from high inflation across many segments has driven up customers' total spending and has led them to assess their capital purchase appetites. In the glaucoma market segment, we experienced relative procedure volume weakness in the second quarter. This is largely due to strong comparable results in the prior year second quarter. But on top of this, we did experience headwinds from continued COVID impacts to surge of center capacity and patient procedure volumes. surprisingly vacations by doctors staff and patients ran unusually high and as a result added to reduced or delayed procedures. These combined to deliver some procedure softness in late May and June. We believe these headwinds are temporary and our team has maintained steady focus on expanding our market and building the physician adoption of our non-incisional approach to treating glaucoma and retinal disease. Clinicians have proven receptive to our enhanced dosing guidance and are monitoring patient outcomes over time as they build experience toward expanded usage on a wider indication of patients. While this process is taking longer than we like, our confidence remains high that we're demonstrating improved outcomes that will lead to broader adoption. Glaucoma probe sales volume increased 2% quarter over quarter, but declined 6% versus the prior year. As I discussed, the decline stems from second quarter 2021 OUS probe sales that were particularly strong as departing distributors placed and sold final orders before Topcon took over distribution for over half of our OUS territories. Despite these challenges, we're pleased that second quarter probe sales attained our second highest quarter ever, only behind last year's second quarter. In Japan, we completed distributor transition at the beginning of the second quarter, marking the last of our large international market transitions. As part of the transition, Topcon received product inventory from the prior distributor and therefore placed minimal orders in the quarter. We anticipate renewed contribution from this region in the latter half of the year and going forward. In June, we were pleased to receive our long-awaited regulatory clearance to market and sell our Cyclo-G6 glaucoma platform in China. This important milestone opens up a significant new market for Iridex. An estimated 9.4 million adults in China are afflicted with glaucoma. That's a market scale comparable to that of the U.S. We sold the initial systems and probes to begin the launch, and together with our distribution partners Topcon and Cliniko, We conducted clinical launch meetings with over 70 physicians, significantly exceeding our expectation of 15 to 20 from our initial launch sites. Together with our partners, we'll support pilot sites and patient experience to build a strong initial presence in China that we can then leverage to penetrate the broader market. To support the growing awareness of TLT in our China launch, we expanded our commercial team with the addition of a vice president of marketing, as well as new sales team members, two in the US and three internationally. Increasing our sales team enables us to continue broadening the geographic reach and focus of our sales efforts. Lastly, our capital position remains secure. though again this quarter we deployed some cash to mitigate potential supply chain impacts and we continue investing in initiatives to secure our long-term growth. Year-to-date cash reduction is approximately $5.9 million with about $3.1 million of that shifted in current assets from cash to inventories and prepayments to mitigate lingering supply chain challenges. On the clinical front, we have several notable updates that put on the work done over the previous years. Clinical presentations and industry articles supporting the dosing impact on outcomes and the importance of sweep speed techniques are increasing awareness of methods to secure optimal results. The first clinical paper from our TLT consensus committee has been published, and a group is finalizing the submission for the second half of the guidance paper which will be published in the same journal. We expect these papers to serve as critical proof point as we continue to drive adoption of PLT and introduce this technology to more and more physicians. Turning to product launches, we're excitedly preparing to launch a new suite of laser systems at the upcoming AAO conference beginning September 30th. This launch will include new platforms for the three main laser products within our retina treatment portfolio. Not only will the platforms deliver modernized architecture and ultimately connectivity capability, but they provide Iridex a lower cost of manufacturing, which we can use to drive share gains and improve margins. We expect initial shipments in the US to begin in Q4, followed by OUS approvals over the next several quarters, and we'll roll out international market launches as those come. As we look at the full year 22, We assessed our performance year to date and the impact from extended prevalence of COVID plus the macro headwinds affecting our expectations for the second half of the year and conclude that it's prudent to lower our revenue and probe guidance for the year. Our updated full year 2022 outlook is as follows. Total revenue of $56 million to $58 million, reflecting growth of 4% to 8% year over year. and we now expect probe sales of 61,000 to 63,000, a growth of 5% to 8% over 2021. Our expectation for glaucoma system sales remains unchanged at 225 to 250 units. We'll continue to focus on executing our growth catalysts and when combined with typically stronger second half of the year sales, we have confidence in our ability to build momentum through the remainder of 2022. In summary, we perceive the current challenges as impacting the fiscal year 22, but we're confident that we have in place an energized commercial team, high quality distribution network, enhanced product portfolio, and a multi-year capital runway that will allow us to succeed in our long-term growth strategy. And PositioneerX is the leading provider of non-incisional laser-based treatments in the ophthalmology market. With that, I'd like to turn the call over to Fuad.